Notice2021-28111
Self-Regulatory Organizations; ICE Clear Europe Limited; Order Approving Proposed Rule Change Relating to Amendments to the ICE Clear Europe Liquidity Management Procedures and Investment Management Procedures
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Published
December 28, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 246 (Tuesday, December 28, 2021)</title>
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[Federal Register Volume 86, Number 246 (Tuesday, December 28, 2021)]
[Notices]
[Pages 73833-73835]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-28111]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93845; File No. SR-ICEEU-2021-020]
Self-Regulatory Organizations; ICE Clear Europe Limited; Order
Approving Proposed Rule Change Relating to Amendments to the ICE Clear
Europe Liquidity Management Procedures and Investment Management
Procedures
December 21, 2021.
I. Introduction
On October 22, 2021, ICE Clear Europe Limited (``ICE Clear
Europe'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4,\2\ a proposed
rule change to amend its Liquidity Management Procedures and Investment
Management Procedures. The proposed rule change was published for
comment in the Federal Register on November 10, 2021.\3\ The Commission
did not receive comments regarding the proposed rule change. For the
reasons discussed below, the Commission is approving the proposed rule
change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Self-Regulatory Organizations; ICE Clear Europe Limited;
Notice of Filing of Proposed Rule Change Relating to Amendments to
the ICE Clear Europe Liquidity Management Procedures and Investment
Management Procedures, Exchange Act Release No. 93523 (Nov. 4,
2021); 86 FR 62588 (Nov. 10, 2021) (SR-ICEEU-2021-020) (``Notice'').
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II. Description of the Proposed Rule Change
A. Liquidity Management Procedures
The proposed rule change would make three changes to the Liquidity
Management Procedures, as described below.\4\ In addition, the proposed
rule change would correct typographical errors in Section 2.4.1 and
Section 2.7.2.
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\4\ Capitalized terms not otherwise defined herein have the
meanings assigned to them in the ICE Clear Europe Rules, Liquidity
Management Procedures, or Investment Management Procedures, as
applicable.
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First, Section 2.1.1 of the Liquidity Management Procedures
provides an overview of ICE Clear Europe's payment obligations and
liquidity needs. Currently, this section describes three sources of
payment obligations relevant to liquidity management: (i) Paying
variation margin; (ii) paying delivery or settlement monies when trades
deliver or settle; and (iii) returning surplus Initial Margin or other
margin to Clearing Members. The proposed rule change would add to this,
as a fourth payment obligation, cash substitution requests by Clearing
Members. ICE Clear Europe is making this change to make the list more
comprehensive, by expressly taking into account cash substitution,
which, as a current practice, ICE Clear Europe allows Clearing Members
to request.\5\
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\5\ Notice, 86 FR at 62588.
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Second, the proposed rule change would add a new section relating
to special considerations for account opening. This section would
provide that when ICE Clear Europe is adding new accounts or amending
existing accounts with counterparties, the Treasury Department would
advise the Legal and Compliance Departments in accordance with relevant
departmental procedures to ensure that relevant banking agreements are
modified, any side or acknowledgement letters are obtained, and any
required regulatory submissions are timely made, as appropriate. This
section would provide that this process would include, for example, the
opening of new accounts for futures customer funds in accordance with
CFTC Rule 1.20(g).\6\
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\6\ 17 CFR 1.20(g).
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Finally, the proposed rule change would amend provisions relating
to haircutting (i.e., risk-based discounting) of non-cash collateral
and cash collateral in currencies other than the required currency.
Section 2.3.1 currently provides that the Clearing Risk Team monitors
the price of non-cash collateral and cash that is in currencies other
than the required currency during the day and calls for additional
Initial Margin if there is a shortfall in the value of the collateral
held. The proposed rule change would amend this provision so that it is
the Credit Risk Team, not the Clearing Risk Team, which monitors the
price of such assets. This change is
[[Page 73834]]
intended to correct the reference to the responsible internal team, as
this monitoring practice is currently performed by the Credit Risk
Team. The proposed rule change would also add that the price of such
assets would be monitored during the day against the applied haircuts,
as a clarification that reflects current practice. Finally, the
proposed rule change would remove the statement about calling for
additional Initial Margin in the event of a shortfall in the value of
the collateral held. ICE Clear Europe represents that this statement
would be unnecessary as it is addressed in the ICE Clear Europe
Collateral and Haircut Procedures.\7\
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\7\ Notice, 86 FR at 62588.
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B. Investment Management Procedures
The Investment Management Procedures set out the permitted
investments and related concentration limits for ICE Clear Europe when
investing or securing cash received from Clearing Members, ICE Clear
Europe's contributions to the Guaranty Fund, or ICE Clear Europe's own
regulatory capital. As such, the Investment Management Procedures
contain a table listing investments authorized for cash from Clearing
Members and ICE Clear Europe's contributions to the Guaranty Fund. This
table provides, among other things, the instrument for investment and
maximum issuer/counterparty concentration limits.
The proposed rule change would amend this table with respect to the
maximum issuer/counterparty concentration limits for reverse repurchase
agreements. Currently, the limits apply per counterparty family. Under
the proposed rule change, the limits would apply per counterparty
group. The proposed rule change also would add a footnote to explain
that breaches of those issuer limits for reverse repurchase agreements
solely due to valuation differences or operational failure/error will
not be considered as a breach of policy. ICE Clear Europe represents
that these updates provide additional detail about existing practices
but do not reflect any change to such practices.\8\
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\8\ Notice, 86 FR at 62588.
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The proposed rule change would add another table to the Investment
Management Procedures that would specify the additional concentration
limits for reverse repurchase agreements involving funds from customers
of Futures Commission Merchants (``FCM''). For those investments, the
Maximum Issuer/Counterparty Concentration Limits would be 25% of total
FCM customer cash balance per counterparty group. ICE Clear Europe
represents this amendment would document an existing limitation based
on CFTC Rule 1.25.\9\
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\9\ 17 CFR 1.25. Notice, 86 FR at 62588.
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III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act directs the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
such proposed rule change is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to such
organization.\10\ For the reasons discussed below, the Commission finds
that the proposed rule change is consistent with Section 17A(b)(3)(F)
of the Act,\11\ and Rules 17Ad-22(e)(2)(v), (e)(7), and (e)(16)
thereunder.\12\
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\10\ 15 U.S.C. 78s(b)(2)(C).
\11\ 15 U.S.C. 78q-1(b)(3)(F).
\12\ 17 CFR 240.17Ad-22(e)(2)(v), (e)(7), and (e)(16).
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A. Consistency With Section 17A(b)(3)(F) of the Act
Section 17A(b)(3)(F) of the Act requires, among other things, that
the rules of ICE Clear Europe be designed to promote the prompt and
accurate clearance and settlement of securities transactions and, to
the extent applicable, derivative agreements, contracts, and
transactions, as well as to assure the safeguarding of securities and
funds which are in the custody or control of ICE Clear Europe or for
which it is responsible.\13\ Overall, the Commission believes that the
changes to the Liquidity Management Procedures discussed above would
help improve ICE Clear Europe's management of liquidity. Specifically,
the Commission believes that listing cash substitution as a liquidity
need, adding procedures for opening new accounts, and clarifying how
the Credit Risk team monitors the price of cash denominated in other
currencies and the price of non-cash assets, would help to ensure that
ICE Clear Europe calculates its liquidity needs, establishes new
accounts, and values the price of cash in other currencies and non-cash
assets in a consistent, predictable manner. Moreover, the Commission
believes correcting typographical errors would help to ensure that ICE
Clear Europe personnel apply the Liquidity Management Procedures in an
accurate and consistent manner.
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\13\ 15 U.S.C. 78q-1(b)(3)(F).
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The Commission similarly believes that the proposed changes to the
Investment Management Procedures discussed above, taken together, would
help improve ICE Clear Europe's management of its investments. For
example, the Commission believes that clarifying that the numerical
concentration limits are based on total cash balance per counterparty
group would help to ensure that ICE Clear Europe calculates the limits
consistently on the basis of counterparty groups. Moreover, adding a
specific concentration limit of 25% of total FCM customer cash balance
per counterparty group for reverse repurchase agreements involving
funds from customers of FCMs should help to ensure that ICE Clear
Europe does not concentrate FCM customer cash in a single reverse
repurchase counterparty.\14\ Finally, clarifying that breaches of
issuer limits for reverse repurchase agreements solely due to valuation
differences or operational failure/error would not be a breach of the
policy would help ICE Clear Europe accommodate different valuation
methodologies from a variety of repo market participants by not
considering breaches resulting only from valuation differences or time
delays in obtaining valuations resulting from operational errors.
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\14\ The Commission notes that ICE Clear Europe represents that
this change would document an existing limitation based on CFTC Rule
1.25. See 17 CFR 1.25; Notice, 86 FR at 62588
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In making these improvements, the Commission believes the changes
discussed above would help ICE Clear Europe to better manage its
liquidity and investments and thereby avoid losses related to its
liquidity and investments. Because such losses, if realized, could
impede ICE Clear Europe's operations and therefore its ability to clear
and settle transactions and safeguard securities and funds, the
Commission believes the proposed rule change would help to promote the
prompt and accurate clearance and settlement of securities transactions
and assure the safeguarding of securities and funds which are in the
custody or control of ICE Clear Europe or for which it is responsible.
Moreover, the Commission believes that better of ICEEU's liquidity and
investments, and avoiding losses related to such investments, could
reduce the likelihood that ICE Clear Europe would need to access liquid
resources provided or backed by a surviving clearing member's
collateral in case of a default, and therefore would help to assure the
safeguarding of securities and funds which are in the custody or
control of ICE Clear Europe or for which it is responsible.
[[Page 73835]]
Therefore, the Commission finds that the proposed rule change is
consistent with Section 17A(b)(3)(F) of the Act.\15\
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\15\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(2)(v) Under the Act
Rule 17Ad-22(e)(2)(v) requires that ICE Clear Europe establish,
implement, maintain, and enforce written policies and procedures
reasonably designed to provide for governance arrangements that specify
clear and direct lines of responsibility.\16\ As discussed above under
Section II.A, the proposed rule change would describe certain
responsibilities of the ICE Clear Europe Treasury Department when
adding new accounts or amending existing accounts with counterparties.
The Commission believes this change would specify a clear and direct
line of responsibility for the Treasury Department. Similarly, the
proposed rule change would clarify the direct line of responsibility of
the Credit Risk Team, not the Clearing Risk Team, to monitor the
intraday price of non-cash collateral and cash that is in currencies
other than the required currency. Therefore, the Commission finds that
the proposed rule change is consistent with Rule 17Ad-22(e)(2)(v).\17\
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\16\ 17 CFR 240.17Ad-22(e)(2)(v).
\17\ 17 CFR 240.17Ad-22(e)(2)(v).
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C. Consistency With Rule 17Ad-22(e)(7) Under the Act
Rule 17Ad-22(e)(7) generally requires that ICE Clear Europe
establish, implement, maintain and enforce written policies and
procedures reasonably designed to effectively measure, monitor, and
manage the liquidity risk that arises in or is borne by ICE Clear
Europe, including measuring, monitoring, and managing its settlement
and funding flows on an ongoing and timely basis, and its use of
intraday liquidity.\18\ As discussed above, the proposed rule change
would add to the Liquidity Management Procedures a fourth payment
obligation, cash substitution requests by Clearing Members, which would
be another liquidity need for ICE Clear Europe. The Commission believes
that this additional description would help to clarify the potential
liquidity needs that ICE Clear Europe would need to satisfy. Moreover,
as described in the Liquidity Management Procedures, ICE Clear Europe
treats non-cash collateral and cash that is in currencies other than
the requirement as two sources of available liquidity, among other
sources. Accordingly, the Commission believes that the changes
described above, which would clarify that the Credit Risk team monitors
the price of these assets during the day against the applied haircuts,
would help to clarify the value of these potential sources of
liquidity. Therefore, the Commission finds that the proposed rule
change is consistent with Rule 17Ad-22(e)(7).\19\
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\18\ 17 CFR 240.17Ad-22(e)(7).
\19\ 17 CFR 240.17Ad-22(e)(7).
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D. Consistency With Rule 17Ad-22(e)(16) Under the Act
Rule 17Ad-22(e)(16) requires that ICE Clear Europe establish,
implement, maintain, and enforce written policies and procedures
reasonably designed to safeguard its own and its participants' assets,
minimize the risk of loss and delay in access to these assets, and
invest such assets in instruments with minimal credit, market, and
liquidity risks.\20\ The Commission believes that the changes to the
Investment Management Procedures described above, in clarifying that
the numerical concentration limits are based on total cash balance per
counterparty group, rather than per counterparty family, would help to
ensure that ICE Clear Europe consistently applies its concentration
limits to groups of counterparties, in line with related ICE Clear
Europe procedures. The Commission believes that this change would
therefore help to ensure that ICE Clear Europe considers the risks of
concentrating investments of cash in one counterparty group, and
thereby would help to safeguard the investment of ICE Clear Europe's
and its Clearing Members' assets. Similarly, the Commission believes
that the additional concentration limit for reverse repurchase
agreements involving funds from customers of FCMs would help to
safeguard the assets of those customers by helping to ensure that ICE
Clear Europe not concentrate FCM customer cash in a single reverse
repurchase investment counterparty.\21\ Therefore, the Commission finds
that the proposed rule change is consistent with Rule 17Ad-
22(e)(16).\22\
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\20\ 17 CFR 240.17Ad-22(e)(16).
\21\ The Commission notes that ICE Clear Europe represents that
this change would document an existing limitation based on CFTC Rule
1.25. See 17 CFR 1.25; Notice, 86 FR at 62588.
\22\ 17 CFR 240.17Ad-22(e)(16).
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act,
and in particular, with the requirements of Section 17A(b)(3)(F) of the
Act,\23\ and Rules 17Ad-22(e)(2)(v), (e)(7), and (e)(16).\24\
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\23\ 15 U.S.C. 78q-1(b)(3)(F).
\24\ 17 CFR 240.17Ad-22(e)(2)(v), (e)(7), and (e)(16).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\25\ that the proposed rule change (SR-ICEEU-2021-020) be, and hereby
is, approved.\26\
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\25\ 15 U.S.C. 78s(b)(2).
\26\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-28111 Filed 12-27-21; 8:45 am]
BILLING CODE 8011-01-P
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